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Thursday, August 13, 2009

Can Vijaya Bank Build Upon the Turnaround?

Vijaya Bank has recently proven that it could sustain the turnaround that started in 2008-09. Further success down the year, however, will depend upon how Vijaya Bank addresses major challenges like managing non performing assets (NPA), bettering NRI remittances, coping with lower treasury gains, and rapid expansion of alternate delivery channels (ADC). Seasonal Magazine finds out Vijaya Bank’s strategies from interactions with Chairman & Managing Director Albert Tauro and Executive Director SC Kalia.

The turnaround that started from the second quarter of last fiscal now seems complete at Bangalore headquartered Vijaya Bank.

Waging formidable battles on both the yield-on-advances front and the cost-of-deposits front – that too in difficult years like FY’09 and FY’10 – Vijaya Bank has come up trumps on the crucial figure of Net Interest Income (NII) in Q1.

Though Vijaya Bank’s performance on the non performing assets (NPA) front leaves room for improvement, the bank finds solace in the fact that it is not a mass issue but an issue with a few large accounts like the sick public sector unit (PSU) Spices Trading Corporation Ltd (STCL).

For managing NPAs, both recovery efforts and monitoring of restructured accounts to prevent fresh slippages have been undertaken.

The bank is betting big on their substantial presence in NRI hotspots like Mangalore, Hyderabad, Kochi, & Chandigarh to achieve a four-fold rise in NRI deposits to Rs. 5000 crore.

Vijaya Bank’s Chairman Albert Tauro and Executive Director SC Kalia realizes that treasury gains won’t be good next time, but believes that their better credit deposit ratio would help reduce the impact.

To manage their network expansion of around 100 new branches, and scheduled retirements, Vijaya Bank is recruiting 1000 new staff this year. This year’s branch expansion will focus on North, West, & Central India, as against its conventional footprint of South India.

With the June 30 results out, Vijaya Bank has made a dramatic turnaround to profitability on a year on year basis – from a 76.64 crore loss to a 143.38 crore profit. Are the quarter-on-quarter results equally promising?

The results are certainly promising and make us feel upbeat about the coming quarters. Let me also make it clear that the turnaround started from the second quarter of last fiscal and we moved consistently and progressively thereafter till the last quarter. On stand alone basis, growth in Vijaya Bank’s core earnings every quarter has been one of the highest among public sector banks (PSBs). Our Net Interest Income (NII) for Q4 of last fiscal clocked a 62% growth, followed by a 54% growth in the June quarter this year. Concomitantly, our earning efficiency also improved progressively from 2.07% in the second quarter of last year to 2.38% for the June quarter. I am sure, with likely pick up in quality and stable business, the current and subsequent quarters show a lot of promise.

Unlike many bigger PSBs, Vijaya Bank has managed a 53.75% growth in Net Interest Income (NII). What were its key drivers? Is it sustainable in the coming quarters?

The key drivers of our NII growth is better yield from our advances portfolio and to some extent, interest cost containment. Vijaya Bank’s yield on advances, at 10.72%, is quite comparable to the best in business while on the cost front, we have managed to bring down cost of deposits to 6.82%. Managing cost of deposit was quite a challenge, I must say, especially in view of the volumes contracted during the second half of 2007-08, a common feature of the banking industry then. For us, it is possible to sustain the NII growth in the coming quarters. Our focus on current account / savings account (CASA) deposits, broad based advances, and quality loan assets is likely see us maintain the growth in core earnings.

You have embarked Vijaya Bank upon a campaign to increase your NRI deposits four-fold within the next couple of years. Apart from starting overseas branches, how do you plan to achieve the target of Rs.5000 Crore?

Campaign "Mission NRI – 5000" aims to increase our non-resident deposit base to Rs.5000 Crore by the end of this fiscal. Vijaya Bank has got good presence in high potential centres like Kochi, Mangalore, Chandigarh and Hyderabad and we are confident of realizing this goal. As brought out by a recent report, India receives the highest inward remittance in the world and with the global market sentiments slated for improvement from the second half of the current financial, we should further this goal with even greater vigour. We don’t have any overseas branch as yet, which we make good with the aid of tie-ups with our correspondent banks. We are also in the process of tying up with leading Exchange Houses in the Middle East to step up our non-resident deposit growth.

Vijaya Bank continues to suffer on the non performing assets (NPA) front, with a increase from 1.71% to 2.94%. With NPAs coming in all the crore lending sectors like commercial real estate, personal loans etc, how do you plan to combat it in the coming quarters?

NPAs are not an exception to Vijaya Bank alone, more particularly if you consider the last few quarters marked by recessionary pressures. About the June quarter as well, almost all the banks have seen rise in the NPA level that was on expected lines. Let me also add that in our case, the addition has been on account of very few large accounts and we are making all efforts to turn those around. Otherwise, our NPA level in sectors like agriculture, education loans etc are quite reasonable and manageable. We have an action plan in place to improve our asset quality. In the first place, we are targeting our restructured loan books and keeping a close vigil so as to prevent fresh slippages. Our loan appraisal and monitoring systems have also been strengthened further to contain the accretion to the bare minimum. Finally, our recovery efforts are being reinvigorated in the form of more V-Adalats, Baaki Vasuli Camps and recourse to various legal provisions.

Vijaya Bank’s STCL account is particularly troubling. How do you plan to solve the issue?

I would not like to comment on any individual account for obvious reasons.

Do you foresee treasury gains slowing for Vijaya Bank in the coming quarters, due to India's mounting fiscal deficit and your low credit deposit ratio?

First of all credit deposit ratio exceeding 67% probably does not merit to be termed as low as against the industry average of about 70%. What is more heartening is the fact that despite relatively low growth in advances, Vijaya Bank could notch up 54% growth in Net Interest Income and 69 bps rise in our Net Interest Margin (NIM) quarter on quarter. That way, our core earnings significantly augmented our treasury income and as such, we are confident of sustaining our overall earnings. Treasury gains in the coming quarters may not be as buoyant as they were in the last quarter. This is applicable to the entire banking industry, given the current trend, likely inflationary pressures and recovery in credit demand and the Government's borrowing plan. Benchmark yields are likely to undergo some hardening, especially from the latter part of the second half. We must also appreciate that the Reserve Bank of India (RBI) may withdraw its accommodative stance once the revival takes effect. In such a scenario, treasury gains may feature slackness in the coming quarters.

From the current business levels of Rs.92000 Crore you plan to move Vijaya Bank up to Rs.1,10,000 Crore by fiscal end. What role will alternate delivery channels like IT play in this growth?

IT Enabled Alternative Delivery Channels (ADCs) will be one of the key drivers in our business growth. Vijaya Bank is already 100% CBS and we have the wherewithal to draw new tech savvy clientele and augment our top line. We offer today any-branch banking as well as remote banking options which are good value propositions for customers who prefer to conserve time and energy by not going for physical branch banking. We have internet banking modules for both corporate and retail segments, offering SMS enabled facilities, bill payment, tax remittance and so on. We are very soon launching Mobile Banking and Phone Banking as also an e-enabled Trading Portal aimed at our niche segments. We have plans to increase our ATM network to 500 by this fiscal and at the moment, our ATM hits are quite encouraging though there is still a lot of upside to it. Besides, ADCs are going to be our competitive advantage as far as our NRI customers and High Net-worth Individuals (HNI) are concerned. Lastly, Vijaya Bank is all set to launch an Online Loan Processing System that will help us improve our advances volume further.